The Commissioner of Income Tax is empowered by section 12AA to cancel registration already granted to a charitable trust or institution, with effect from 15t October, 2004. The new provision has been introduced to clarify that the power of cancellation of registration already granted was in existence but it was the subject matter of litigation.
The amendment provides that if the Commissioner of Income tax is satisfied that the activities of any trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, he shall, after giving reasonable opportunity of being heard to the concerned trust or institution, pass an order in writing cancelling the registration granted under section 12AA.
A section of the society feels that the power to cancel registration would be a threat which the Department could use against the trusts and institutions to make them fall in line with the departmental view or action, failing which threat of cancellation of registration would be executed so as to deny total exemption from tax to charitable institutions and to impose the levy of tax, interest and penalty on the moneys already spent / utilized for charitable purposes.
The power to cancel registration has been given to the Commissioner without granting to the trusts a corresponding right to agitate the order of cancellation. The assessee has to agitate the grievances only before the High Court in a writ petition. The Finance Act, 2010, amended subsection 3 of section 1 2AA so as to also provide for cancellation of registration where any trust or institution has obtained registration at any time under section 1 2A before its amendment, effective from 1st June, 2010.
It is advisable to pass resolutions in the Board meeting of the trustees relating to the following aspects and attach the same along with Form No. 10A:
(a) That the investment of surplus funds will be made only in such manner and in such securities, permitted by the Income-tax Act, 1961.
(b) In case the trust deed is silent, that in the event of dissolution of the trust, the funds of the trust will be donated to some other trust with similar objectives.
(c) That any alteration to the trust deed will be communicated to the Commissioner immediately. Though this part is founded in Form No. 1 OA itself, most Commissioners insist that a resolution of the Board of trustees should be passed in this regard. Some Commissioners insist that the resolution should be to the effect that any alteration to the trust deed will not be carried out except without the prior written permission of the Commissioner.
(d) Form No. 1 OA is to be filed in duplicate. In case PAN has been obtained for the trust, the same may be quoted on right hand top corner of Form No. 1 OA. Form No. 1 OA in duplicate, along with a certified copy of the trust deed and a copy may be filed along with the above resolution copies, in the office of the Commissioner along with a covering letter which clearly lists out the enclosures. If two copies of the letter are taken, the receiving clerk in the Commissioner’s office will sign and affix date and seal in one copy of the letter. This is the proof of having submitted the application for registration.